Notice to Quit Chicago,Il

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					The American Labor Market in
      the 19th Century
•The American labor market is regarded
as the most flexible (efficient) market
among developed countries---there is
easy geographical and vertical mobility
with considerable wage flexibility.
•When did it acquire these
characteristics? Was it always this
way? What was the role of
 Nineteenth Century Growth of the
           Labor Force
• Rapid growth and rising labor force participation.
• 1800-1860 growth rate of 3.1% and 1860-1900
• Growth driven by fertility (declining over century)
  and waves of immigration driven by the business
  cycle. Jumps in immigration in the 1840s
  (Ireland and Germany) and then 1880-1910
  (Eastern and Southern Europe)
Margo (CEH, 2000): Growth of Labor

                            If LFPR in
                            1900 =
                            LFPR in
                            1870, then
                            the rate of
                            growth of
                            p.c. income
                            would have
                            been 20%
         Margo (CEH, 2000)
Variations in Labor Force Participation
Agriculture to Manufacturing, Commerce and Services
Structure of Employment---reflects age and
    literacy, indicators of human capital

                                By 1900, of men:
                                23% farmers
                                19% farm laborers
                                Blue Collar:
                                25% unskilled
                                40% are semi-and
                                5% Services
                                7% clerks-sales
                                18% professional
                                and managers
             Wage Differentials
• Constitution forbids barriers to labor, capital and
  goods mobility.
• Geographic wage differentials indicate (1)
  spatial extent of market, local? regional?
  national? (2) differences in regional living
  standards, quality of life (ND vs. CA)
• Occupational wage differentials measure (1)
  shifting structure of the economy, (2) inequality--
  -does growth lead to inequality?
• One hypothesis: if capital-skilled labor
  complementary, fall in price of capital leads to
  rise in skilled wages if their labor is inelastic---
  but evidence from 1850 shows capital a
  substitute for skilled labor and a complement to
  natural resources
Only antebellum period not late 19th century
     studied---here little geographic or
            occupational trend
        Rosenblum (JEH, 1993)
• How to measure integration? Law of one price.
  However large demand or supply shocks can
  cause temporary differentials, depending on
  speed of adjustment, which is in turn dependent
  on information and migration costs.
• Previous studies compare daily wage rates
  within narrowly defined occupations. Often
  scattered and thin samples. His own (JEH,
  1993) found persistent real wage gap North and
  Central (1870-1898) of 20%. Compared to
  another study where differentials in 1890 only 3-
• Earnings data: broader coverage, based on
  census data. How are earnings imputed?
The model?
     Rosenblum (JEH, 1996)
• Concludes that there was a well-integrated
  (equal if not greater than today) labor
  market in Northeast and North Central
  regions by 1879 from Portland (ME) and
  Wilmington (DE) to Chicago (IL) and
  Witchita (KS) and Omaha (NB).
• Emerging labor market in the South but
  South and West remained unintegrated
  with Northwest and North Central.
             More Integration:
             Kim (JEH, 1998)
• Why do region’s
• Can economic
  integration eliminate
  External economies?
• How to measure
     But…What of the Condition of
Income = (wage rate*daily hours of work)*days worked per year
Antebellum real wage growth---limited data. Data
      for civilian employees of U.S. Army
    The Growth of Real Wages
• Estimated time trend 1860-1900 is 1.1% p.a. for
  non farm laborers, and for agricultural workers
  without board 0.9%.
• Overall 1800-1900, real wages increase at 1.0 to
  1.1% and p.c. incomes at 1.1 to 1.2%, implying
  real wages 270 to 330 higher by century’s end.
• Difference in wages and incomes due to higher
  labor force participation rate and higher annual
  hours of work.
• Better off? Life on the farm or small town 1820
  very different from factory in Chicago in 1900.
Hours of Work in Manufacturing?:
1st study 1832 manufacturing day in Mass: 11 hours 10 minutes
   Why did manufacturing weekly
          hours decline?
• Government regulation.
• 1840 President Van Buren establishes 10-hour
  day for federal employees. Pressure at state
  level but little happens.
• After Civil War, organized labor campaigns for 8
  hour day. By 1896, 13 states have maximum
  hour days, especially aimed at women, but
  enforcement except in Massachusetts is weak.
• Compulsory schooling laws, increased
  attendance but effect on work small.
   But for whole economy, annual
         hours of work rise!
• They increase 1800-1900 by about 10%.
• Annual hours greater for indoor work, shift
  from agriculture to manufacturing. Less
  seasonality---less downtime.
• Factory owners want to keep capital in
  operation—as grow in size, production
  more capital intensive.
• Increased integration, reduces seasonal
  element of labor supply.
Postbellum real wages of nonfarm workers

                                   NBER BUSINESS CYCLE
                                     REFERENCE DATES
1870s Depression
                                   Peak           Trough
                                                December 1854
                                June 1857       December 1858
                                October 1860    June 1861
             1890s Depression   April 1865      December 1867
                                June 1869       December 1870
                                October 1873    March 1879

                                March 1882      May 1885
 Civil War                      March 1887      April 1888
                                July 1890       May 1891
                                January 1893    June 1894
                                December 1895   June 1897

                                June 1899       December 1900
   Cyclical Instability of Wages
• Nominal and real shocks are persistent, causing
  real wages to deviate from long-run path.
• In long-run prices are ―neutral‖ to nominal wages
  one-for-one movement, but substantial short-run
  deviations. Since antebellum prices are
  procyclical, real wages are countercyclical.
  (Note: only employed are better off.)
• By 1900 wages more sluggish in responding to
  nominal and real shocks compared to
  antebellum period.
• But wages in 1900 more flexible than today.
  Unemployment—Pre-1914 not the Golden Age
       James and Thomas (JEH, 2003)

• Natural rate---higher before 1914
  compared to post-World War II
• High turnover and labor instability: Goldin
  found in Kansas BLS that 95% of all
  laborers experienced unemployment in
  last 3.7 years. High quits, layoffs and
  dismissals for blue collar employees.
  Frequent short spells of unemployment—
  many ―floaters‖ in the economy.
Cyclical industries include manufacturing, mining and construction
            Labor Relations
• Shift from artisanal shop to factory---
  difficult shift, very different organization of
  work---repetitive more intense work,
  monitoring with incentives (piece rates)
  and discipline.
• Resistance—result women, children and
  immigrants fill factories.
• Most factories not mechanized or large
  (big exception are textiles) until after Civil
Mass textiles workers 1860
   Foudrinier Machine is from Ballou's Pictorial,
  June 9, 1855. A Foudrinier Machine is used in
paper mills to make book paper, leaving the paper
   on reels to dry so that it will be ready for the
                 finishing process.
             Antebellum Unions
• Working class movements short-lived before
  Civil War. Strikes pro-cyclical---recessions kill
  unions. Severe panic of 1857 turns into
  recession and unionism ceases.
• Legal Standing:
   – NY Supreme Court---union members who refuse to
     work with non-union labor guilty of criminal
     conspiracy. (Strict construction of Article 1, section 10
     U.S. Constitution that states cannot pass laws
     abrogating contracts.)
   – But Mass. Supreme Court (1842) formation of union
     not evidence of criminal conspiracy---right to press for
     closed shop.
      1834 Boston Transcript reports on the Strike
• "We learn that extraordinary excitement was occasioned at
  Lowell, last week, by an announcement that the wages paid in
  some of the departments would be reduced 15 percent on the
  1st of March. The reduction principally affected the female
  operatives, and they held several meetings, or caucuses, at
  which a young woman presided, who took an active part in
  persuading her associates to give notice that they should quit
  the mills, and to induce them to 'make a run' on the Lowell Bank
  and the Savings Bank, which they did. On Friday morning, the
  young woman referred to was dismissed, by the Agent...and on
  leaving the office...waved her calash in the air, as a signal to
  the others, who were watching from the windows, when they
  immediately 'struck' and assembled about her, in despite of the
  overseers."The number soon increased to nearly 800. A
  procession was formed, and they marched about the town, to
  the amusement of a mob of idlers and boys, and we are sorry
  to add, not altogether to the credit of Yankee girls....We are told
  that one of the leaders mounted a stump and made a flaming
  Mary Wollstonecraft speech on the rights of women and the
  iniquities of the 'monied aristocracy,' which produced a powerful
  effect on her auditors, and they determined to 'have their way if
  they died for it.'"
           Postbellum Unions
• Growth of unionism during Civil War—several
  hundred thousand members of craft unions.
• Strikes more winner-take-all than today, half a
  victory for labor.
• Knights of Labor founded 1869, rapid growth by
  1886, 750,000 (very diverse) members.
  Bombing at Haymarket Square rally in Chicago
  1886. Public reaction and political repression, it
Haymarket Riot
      Rise of the Craft Unions
• American Federation of Labor (AFL) by 1900,
  500,000 members. Development of written
• In 1914, 16% of industrial labor unionized---1880
  only 3%. Meanwhile, UK 23%, France and
  Germany 14%.
• Why didn’t American labor embrace socialism?
  Early universal male franchise? Greater belief in
  private property? High immigration? High
  internal migration? Violent repression?
 The Role of Immigration
in the Development of the
  American Labor Market

Antebellum Immigration
Postbellum Immigration
Joseph Ferrie, Yankeys Now (1999)

                        of British, Irish
                        and German
                        Irish Famine
                        and 1848
                        Revolutions in
                        Antebellum Era
              Ferrie (1999)
• Concentrated effects in the North
• In textile mills of Lowell where 90% of
  workers were native born in 1849, only
  35% native born in 1855. Replacement
  and ―de-skilling‖ substitution of skilled for
  unskilled plus capital.
• Backlash, 1850s labor organizations,
  strikes and support for a ―nativist‖ creed.
     Rise of the ―Know-Nothings‖
• Order of the Star-Spangled Banner grew from secret
  society of 43 in 1852 to national political organization
  that claimed one million in 1854. Elected 8 governors,
  many congressmen and mayors.
• Philadelphia Sun: “the enormous influx of foreigners
  will in the end prove ruinous to the American
  workingman, by reducing the wages of labor to a
  standard that will drive them from the farms and
  workshops altogether, or reduce them to a condition
  worse than that of Negro slavery.”
• Know-Nothings was to increase years to become
  naturalized but not halt immigration. Seems mild…but
• Ferrie (1999) found that impact greatest on skilled
  native-born workers in northeastern cities. Minimal
  effects elsewhere-----this result very different from
  widespread effects found by Goldin and others at turn
  of century when eventually restrictions on
  immigration were adopted.
Post-Civil War Immigration
     The Tidal Wave
The ―new‖ immigrants arrive
Nativism? Anti-
  racism? Or
   But how to restrict?
   The Literacy Test:
 immigrant must show
   that they can read
  several sentences of
the Constitution in any
    language of their

  Presidential vetoes
   only real block, a
  matter of time for a
recession, war or labor
 unrest. From 1897 to
   1914---17 million
    slipped through.
Literacy Test becomes
       law in 1917
  1917 Literacy Test effective?
• From 1905-1914 when immigrant flow more than
  one million per year, the literacy test would have
  lowered immigration from southern and eastern
  Europe from 712,000 to 445,000.
• The Emergency Quota Act of 1921 limited
  southern and eastern Europeans to 156,000 and
  the 1924 and 1929 acts lowered it to 20,000.
• Quota Acts of 1921, 1924, 1929---severely
  restrict immigration until the 1960s.
  Why Did the U.S. Slam the Door
   Shut in 1921? Goldin (1994)
• AFL and Knights of labor come out in favor
  of a test in 1897, and enjoyed some
  support from capital in labor unrest of
• New immigrants from southern, central
  and eastern Europe.
But---the U.S. is just part of global market----
     effects of First Era of Globalization
              (Williamson, 1998)
• At the beginning of 19th century, a technological
  revolution in Britain that spread slowly led to a
  big divergence in real wages and living
  standards across countries.
• Decline of transport costs and tariffs-----
  substantial convergence of factor prices
  between countries by the end of the century.
• But, factor price convergence caused rising
  inequality in factor abundant economies, like the
• Protests of affected labor in U.S. and land in
  Europe—led to immigration restrictions and
  trade barriers at the end of the century.
• American Response?
• European Response?
  But what is driving factor convergence?
  O’Rourke, Taylor and Williamson (1996)
• Was it the movement of goods?
• Was it the movement of factors? (Or the
  growth of factors)?

• Need to sort out these factors.
• The Hecksher-Ohlin model---beyond 2 x 2
• The role of tariffs
Big Differences in Levels of Protection
 Even protectionist countries feel the effects

Terms of trade should include
  effects of tariffs and non-
Factor endowments
matter: capital
deepening and land
deepening though
the impact is larger in
the New World where
agriculture is bigger.
A rise in relative price
of agricultural goods
favors return to land,
greater than one
(magnification effect).
Productivity growth
was labor saving in
New World and land-
saving in Old World—
consistent with
induced innovation
 That’s statistical significance—what about
          quantitative significance?
Multiply change in variable times coefficient.
Central role of
  61% of US
 W/R change
due to it, 42%
     of UK
    of total
change in US-
   UK W/R
 Ohlin factor
 accounts for
  about half.
Factor saving
also powerful.

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